Michael Dell Takes Stake in Music Publisher Kobalt

Michael Dell’s private investment firm, MSD Capital, is taking a 9.9% stake in Kobalt, a 13-year-old company that says its advanced technology makes collecting royalties more efficient and lucrative for the songwriters the company represents. MSD paid about $25 million for the stake, according to people familiar with the matter. MSD declined to comment on the price.

Mr. Dell, the founder and chief executive of computer maker Dell, wasn’t primarily responsible for his investment firm’s decision to take a stake in Kobalt. Instead, according to an MSD director, David Caro, the managers of his family’s $13 billion thinks Kobalt is a high-growth company that’s well-positioned in the market. The 15-year-old entity invests in a broad range of sectors, a spokesman said.

Kobalt’s revenue grew 40% to $175 million over fiscal 2013.

Kobalt, whose catalog includes songs written by Paul McCartney, Prince, Stevie Nicks and Swedish hit-maker Max Martin, says it pays smaller advances when it signs new songwriters than many of its competitors do, but takes commissions amounting to only 6% to 15%, far less than the 50% taken by traditional music publishers.

Music publishing involves collecting payments on behalf of songwriters when their compositions are used in a variety of ways: sold on CD or as downloads; played on the radio or in a public place such as a restaurant or nightclub—whether live or from a recording; included in a TV or movie soundtrack; or played via an online service.

Thanks to the proliferation of digital outlets, royalty collection is becoming an increasingly complex task: the number of payment lines for a single song has increased tenfold over the past seven years. What’s more, every country has its own evolving copyright rules that govern payments. All of that has put a premium on sophisticated micropayment tracking systems.

As a result, the once-sleepy music publishing business has begun to attract entrepreneurs and investors looking for more sophisticated approaches.

Kobalt’s chief executive, Willard Ahdritz –a former finance-sector management consultant – said that Kobalt’s proprietary, transparent technology platform, which is integrated with Google’s YouTube, makes its royalty collections more efficient. Even though it’s free, YouTube is a growing source of revenue for artists and songwriters thanks to the advertising revenue it shares with rights holders.

Ahdritz said Kobalt planned to collect royalties from the listening habits of a total 1.5 billion people within the next twelve months, up from the 300 million listeners it currently monetizes, as it begins to collect royalties from YouTube and other digital platforms in Southeast Asia, Russia and Latin America, where licensing agreements are just now being established. Kobalt is working with local collection societies in some of these territories.

The company’s backers include Balderton Capital, a European technology-focused venture capital firm. The original capital was provided by Spark Ventures, which sold the last of its stake to MSD.

Songwriters represented by Kobalt can monitor their royalties in real time on the company’s server, as well as where and why any payments may be delayed. Traditionally, songwriters have received relatively opaque royalty statements from their publishers several times a year.

In a release, Mr. Dell lauded Kobalt’s “innovative technology” and added that Dell would also make its technology services available to the publisher.